Proposals to Change Tax Rules for Personal Service Companies Aimed at Government Departments Could Hit Private Sector Employers – KPMG

Michelle Remo, “Big 4″ observer

May 24, 2012 /

If preventing government departments from hiring senior staff via personal service companies is the policy objective, why not just introduce a ban, KPMG has asked.

Some measures to tackle abuse via personal service companies under IR35 were already outlined earlier this month by HMRC.

Commenting on the consultation document on the taxation of controlling persons issued by HMRC and HM Treasury, tax partner and head of employment tax for KPMG in the UK, Jayne Vaughan said: “The essential ‘problem’ that the authorities are trying to ‘fix’ is that of government departments engaging senior ‘controlling persons’ via personal service companies (PSCs). They are attempting to address this by changing the rules for ALL employers – not just government departments.

“The knock-on effect of this for many private sector employers is that it could become more complicated, more expensive and more difficult for them to obtain the services of the people they need when they need them. At a time of economic difficulties with the focus very much on growth, making it easier and more flexible to hire people seems to make sense.

“In a number of sectors (such as construction, Engineering, IT) there are likely to be a number of individuals who are routinely engaged via PSCs and could be caught by the definition of “controlling person”, suggested to include for example having managerial control, controlling budgets and/or the workforce etc.

“A simpler and easier approach would be to simply introduce a policy under which government departments were not allowed to use these personal service companies if that is the objective being sought.

“There are concerns about wider tax leakage from the general use of PSCs but these are already being addressed via changes already under way to the IR35 regime. All in all today’s condoc seems surplus to requirements.”

KPMG will be covering this subject in more detail at a future Employers Club Webex on 12 June 2012.